Tax control of business entities: the grounds and consequences of non-compliance with the tax audit

27/ 05/ 2019

Oleksandr Hladii

Director of Law Agency «Absolute»

After the moratorium expires, business control has recovered with renewed vigor. Practice shows that it is the State Fiscal Service of Ukraine that actively contribute to the formation of the state budget, directly at the expense of fines imposed on economic entities for various violations of tax legislation.

Article 75 of the Tax Code of Ukraine distinguishes the following types of inspections: the cameral, documentary (scheduled and unscheduled, outgoing and non-existent), factual.

The grounds for carrying out certain inspections are also provided for by the National Bank of Ukraine. At the same time, if the documentary check of the subject of business is to be warned in advance (the schedule of scheduled inspections is posted on the official site of the State Fiscal Service of Ukraine), then the actual-is conducted without warning. The frequency of such control measures is influenced by the degree of risk to the taxpayer (criteria for assigning to a certain risk group can be found in the Order of the Ministry of Finance of Ukraine dated 02/06/2015, No. 524).

Courts on the business side

Judicial practice in such cases is quite diverse. So, often the courts turn to the business entities … For example, in the case No. 810/2099/18, the District Administrative Court of Kiev satisfied the applicant’s claim and found it illegal to correct the already approved schedule of inspections by introducing new taxpayers. Such a decision was motivated by the fact that it is necessary to adjust the already formed schedule in the current year in accordance with Order number 524, which does not provide for the possibility of inclusion of new taxpayers. From this, it follows that changing the already approved schedule is unlawful on the part of the financial control authorities. A similar position was expressed by the Mykolayiv and Donetsk administrative district courts in cases No. 1440/2301/18 and No. 0540/8468/18, which undoubtedly indicates positive changes in comparison with earlier judicial practice on this issue.

However, in its resolution of 24.12.2010, the Supreme Court of Ukraine indicated that if a person considers that the procedure or grounds for the appointment of an inspection have been violated, it has the right to defend their rights by not allowing officials to conduct such events. If such a tolerance still took place, then the subject of consideration in court can only be the essence of the identified violations.

This is evidenced by the Supreme Court rulings of 18.12.2018 in the case No. 826/3014/16 and from March 13, 2018, No. 804/1113/16, in which the position is clearly articulated that the taxpayer has the right to protect his or her rights by not allowing the official persons for tax audit. At the same time, the claims of taxpayers aimed at challenging the actions or inaction of the controlling bodies can only be satisfied if, before the decision on the case, there was no admission of officials to the conduct of the challenged inspection.

At the same time, the practice of the Supreme Court shows that the right to exist and the following legal position: an order to carry out a tax audit can be appealed, regardless of whether such an inspection has taken place. Thus, in its ruling of 21.03.2018 in case number 812/602/17 the panel of judges has determined that the right to judicial protection, connected with the unlawfulness of the contested decision on the verification, exists despite the fact that there were control measures and whether officials were admitted to such conduct.

Thus, allowing the conduct of inspections at their enterprise, individuals are not deprived of the right to appeal the notice-decision because of its non-compliance with the requirements of the law or the competence of the controlling authority.

Grounds for analysis

In addition, by the decision of the Supreme Council dated 02.03.2018, No. 820/2762/17, it has been established that in each particular case it is necessary to carefully analyze the grounds for carrying out the inspection. In this case, the issue of submitting a request for tax information to the controlling body was considered. The highest judicial authority noted that if such a request was made in violation of the requirements of the tax law, the taxpayer is exempted from answering such a request. Such a decision is motivated by the fact that the content of the request is normatively defined and not subject to extended interpretation.

There was also a great practice of the Supreme Court in cases of recognition of the order to conduct a tax audit invalid. For example, in the case of 826/14478/17 dated September 11, 2018, the High Court considered the issue of proper execution of the order for inspection. Judges came to the conclusion that if the order or an extract from it does not contain obligatory elements, for example, the period of the inspection, such order will be considered insignificant and can be canceled.

Thus, on the basis of the findings of the court in this case, the proper execution of a copy of the order, as well as the availability of an exhaustive list of the information specified in paragraph 81.1 of the Tax Code of Ukraine, incl. the period of activity of the person to be checked. Taking into account the circumstances of the case, the court found that in this case neither the order itself nor the extract from it had no such information, which was the basis for the conclusion that the document did not comply with the requirements of the tax legislation. In this case, the Supreme Court noted that the provisions of the Instruction on case management or any other standards can not cancel the requirements of the Tax Code. In particular, this also applies to the content and form of the order for a tax audit (the signature of the authorized person and the seal of the controlling body in it).

The decisive defect

It should be noted that the court, in this case, rejected the defendant’s arguments that certain defects of the order may not be decisive if the subject of the management of the officials admitted the officials to the audit. Issue of an order is a way of realizing administrative functions, and violations of its form and content refute any arguments about the legality of a document.

Thus, in identifying certain violations in the actions of representatives of the controlling bodies, it makes sense to point to this fact in court. As a result, this will allow to establish the wrongfulness of the requirements of officials, and will give grounds for the cancellation of these documents.

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